Saturday June 6, 2020

Washington News

In Notice 2020-5, the IRS announced mileage rates for use in computing deductability in 2020. The 2020 mileage rate for business is 57.5 cents per mile. The rate is 17 cents per mile for moving and medical travel. For qualified charitable travel, the rate is 14 cents per mile.

Business mileage for employees was previously deductible as a miscellaneous expense. Miscellaneous expense deductions were permitted if they were over 2% of adjusted gross income. However, the Tax Cuts and Jobs Act (TCJA) repealed miscellaneous expense deductions, including the employee business mileage deduction.

Because employee business mileage is not deductible, most employers reimburse their employees for mileage. The employer must be able to show the mileage was an “ordinary and necessary” business expense. Employees should record the date, miles driven, the start and end locations and how the travel relates to their job responsibilities. Reimbursements in 2020 are permitted at a rate of 57.5 cents per mile.

Moving and medical mileage were also affected by the TCJA. Moving mileage is generally not deductible for most taxpayers. An exception is available for active duty military who move due to a permanent change of station. They may deduct 17 cents per mile.

Medical travel is deductible, but subject to a 7.5% floor. If the total medical expenses exceed 7.5% of adjusted gross income, the taxpayer should record the date, miles driven, start and end points and the medical purpose of each trip. It may be helpful to retain receipts to document that medical purpose.

Charitable travel is deductible at 14 cents per mile. Once again, “reliable written records” should include the date, miles, start and end points and the charitable purpose of each trip. Taxpayers will need to itemize to take their mileage and other charitable deductions.

The IRS offers specific guidelines on IRS.gov for deducting charitable travel. The charity work must be real and substantial throughout the trip. Taxpayers may not deduct mileage they have only nominal duties. They may not deduct the value of their time or services. Some types of travel do not qualify. Taxpayers may not deduct their mileage if a significant part of the trip involves recreation or vacation.